Is Wall Street Rigged? New Report Looks At High-Frequency Trading

Traders work on the floor of the New York Stock Exchange on March 28, 2014 in New York City. (Photo by Spencer Platt/Getty Images)

NEW YORK (CBSNewYork) — The Dow Jones industrials were up 134 points Monday, but the buzz on Wall Street was all about a “60 Minutes” report on a new bombshell book claiming the U.S. stock market is “rigged.”

As CBS 2’s Tony Aiello reported, many have been worried what the impacts will be on their investments and retirement if the claims are true.

In an interview that aired Sunday. best-selling author Michael Lewis told Steve Kroft on “60 Minutes” Sunday night that super-fast, computerized stock trading now controls more than half the market and raises the costs of stocks for everyday investors.

“The United States stock market, the most iconic market in global capitalism, is rigged,” Lewis said, “by a combination of these stock exchanges, the big Wall Street banks and high-frequency traders.”

Stock expert Joe Saluzzi of Themis Trading said he hopes the book is a wake-up call for Wall Street.

“People were anticipating this book for weeks now, and they are talking about it a lot,” Saluzzi said.

Lewis, the author of the book “Flash Boys,” said tech-savvy high-frequency trading firms are using the super-fast computers and access to fiber-optic cables to gain a split-second advantage on stock trades.

It might drive up the price just a penny or two. But over time, that could hit the average person’s pension fund, investment account, or 401(k).

“How does it come out of your portfolio? Well, it’s in less performance,” Saulzzi said. “If you were supposed to make 10.2 percent, well, maybe you will make 10.1 percent. It doesn’t sound like a lot, but do it millions and millions of times and it adds up.”

Saluzzi said the high-frequency traders drive up costs and soak up money that could be reinvested.

“It’s a zero-sum game,” Saluzzi said. “Billions are being made by these so-called ‘high-frequency traders.’ It has to be extracted from somewhere.”

Speaking Monday on “CBS This Morning,” Schneiderman, who has called on the exchanges to end the practice, said high-frequency traders “use their speed to take advantage of cracks in the foundations of our market.”

He reiterated that the advantages let traders make fast and often risk-free trades before the rest of the market can catch up.

“There are places where you can get to faster than other people and front-run the market,” he said. “What’s improper in front-running is using any special advantage or edge with your speed to have an unfair advantage over anyone else.”

He said fast, electronic orders have been around for a while and are not illegal, but said reforms and changes may be needed to level the playing field.

“People are paying hundreds of millions of dollars to shave milliseconds off and it’s used by all different kinds of firms, including some perfectly legitimate firms,” he said. “The high-frequency traders are these amazing combinations of scientists and analysts that are just shaving speed every day.”

Schneiderman said virtual speed bumps can be used to slow down high-frequency traders and make the stock market fairer.

U.S. Sen. Charles Schumer also expressed concern.

“I’ve asked the SEC to investigate this, and I hope they will give it a thorough investigation, because once people believe the markets are not on the level, that’s the beginning of the end for them,” Schumer said. “It’s a big New York employer. If that’s going away, we’re in big trouble.”

Earlier this month, Schneiderman said Marketwired agreed to stop selling direct feeds of the information it distributes for clients to high-frequency traders.

Marketwired said it made the decision before talking with Schneiderman and said it “will now eliminate any perceived advantages gained through technology by certain customers.”

That followed a similar agreement in February by Business Wire, a Berkshire Hathaway subsidiary.